Надо сокращать бюджет: соцвыплаты занимают лишь треть госрасходов

At the time of writing this interview, Head of State Kassym-Jomart Tokayev noted during the kurultai that our state is a social one, therefore investments in education and healthcare are a priority and a constitutional duty, and abuses in this area are unacceptable. In this regard, non-priority expenses will be reduced and the government has been instructed to develop specific mechanisms for optimizing these expenses by the end of the year.

On the eve of what the president said, economist Askar Kysykov just shared his thoughts on this matter with a correspondent inbusiness.kz What solutions does the expert see? What is the potential for budget optimization? What taxes should be reduced? The economist answered these and other questions in more detail in an interview.

- Askar Baurzhanovich, in the context of discussing tax increases, the government notes the idea of reducing spending on social services under the plausible pretext that the budget is already almost 99.9% social. You are one of the few experts who has an opinion on the size of the social budget. Moreover, you see the potential for optimization. Tell us your point of view in detail.

- If you look at the structure of the state budget of Kazakhstan, it is certainly social, and this is not surprising. In all countries, social budgets and social tasks – education, medicine, pensions, support for the poor – are the main basic function of the state. And to say that we have a social budget in Kazakhstan and that taxes need to be raised because of this is a wrong argument.

Last year, the volume of state budget expenditures amounted to about 31 trillion tenge, and 53% of them were social expenditures. What do we mean by social expenses? These are social security expenses, including pensions, benefits, various payments, targeted social assistance, expenses for education, medicine, culture and sports.

But there is another part of the expenses, 47% are not social expenses. They are related to other government tasks, including infrastructure development, support for the real sector of the economy, such as agriculture, the maintenance of the state apparatus, and the performance of other government functions related to security and defense. However, the 99.9% figure that our budget is social is incorrect.

- Is it correct to understand that the government considers indirect expenses for the construction of schools, infrastructure, and so on as social spending? What other things are sewn into the government's so-called social spending?

- There is another classification of budget expenditures – economic. And, according to this classification, direct payments to the population, which include salaries, pensions, and benefits that the population receives directly from the budget in cash, amount to only 35% of the budget. The remaining 65% of the budget consists of purchases of goods and services (5.5 trillion), budget subsidies (1.6 trillion), capital expenditures, repairs and construction (5.4 trillion), as well as budget loans and the purchase of financial assets. That is, a significant part of the budget is spent through various procurement procedures, tenders, financing through the quasi-public sector, and so on.

And I believe that these costs have a serious potential for optimization. When we talk about the sociality of our budget, we mean the relative share of expenses. But this is not to say that our citizens receive excessive support from the state. An example is targeted social assistance. Last year, 400,000 people received targeted social assistance, and only 40 billion tenge was allocated for these purposes.

40 billion tenge out of 31 trillion tenge is catastrophically small. Last year, the poverty line in Kazakhstan was 30 thousand tenge, and the average amount of targeted social assistance was 8 thousand tenge. That is, yes, the budget is social, but the level of social support for the population is not prohibitive. And in my opinion, on the contrary, the social orientation of the budget needs to be further strengthened.

It is social spending related to direct support for the population and low-income families that should become a key priority, especially in the context of rising prices, higher tariffs and falling real incomes.

It is worth adding that social spending includes a broad cost estimate. For example, if we take education or medicine, it's not just paying salaries to teachers and doctors.

There is also the purchase of goods, various contracts, and the construction of schools and hospitals. For example, in medicine, a lot is spent on the purchase of medicines. Accordingly, even within social spending, there is potential for optimization, especially in procurement and construction. And this is a matter of proper budget planning and execution procedures.

And these social expenditures – social security, education, medicine – must first be algorithmized, digitized, made transparent and targeted.  

- What is the optimization potential if we follow your logic?

- It is difficult to say exactly how much expenses can be reduced. But even if the expenditure side cannot be seriously curtailed, I think there are ways to at least limit further cost growth so that the growth rate of expenses does not exceed the growth rate of our income.

Great optimization potential is hidden in the financing of the real sector of the economy and various investment projects. For example, when the government discusses tax increases, they propose a new program to support economic sectors, including through the Baiterek holding, in the amount of about 8 trillion tenge.

A national project for the modernization of the energy and utility sectors has also been adopted. A lot of money is being allocated. We need to take a close look at these expenses and the projects that are planned. If we are talking about infrastructure development, and this is directly related to the tariff policy that we are implementing, given that we are aiming to move to market-based tariffs, then infrastructure, especially in the energy and utilities sectors, should be cost-effective. In other words, the investments that are invested in the development of the energy and utilities sector should be repayable. If they are repayable and involve payback, then private investments can be attracted for this, rather than public ones. The government should make it a rule not to spend money on projects that can be financed by the private sector.

And this habit of financing, trying to pour public money into the economy and some priority sectors, must be abandoned, since the key goal of the budget should be to fulfill the basic functions of the state.: security, defense, education, medicine, social support for the population, and important infrastructure projects that cannot be financed by the private sector, which are public goods, such as roads, bridges, and so on.

- At one time we talked about benefits and support, but the real recipient of such state aid is actually a business. Let's take baby food in schools, where parents do not actually choose a supplier, and the majority of children do not eat this free food. Perhaps we should monetize benefits through payments to people, and let them decide for themselves which service provider to contact? Have you evaluated this aspect?

- If we are talking about benefits and support for the population, then there is a lot of hidden subsidization in Kazakhstan, when people use preferential tariffs and prices, and as a result, the state pays for it. The benefits are enjoyed by the entire population, and there is no division into people with low and high incomes. And, of course, for this they came up with the monetization of benefits, when all subsidies are distributed not to the supplier of services and goods, but to a specific recipient. That is, it is those who really need it, have low incomes, and are socially vulnerable. This allows you to significantly reduce the total amount of support and distribute it to people in need.

And it is precisely in this aspect that digitalization can help - the creation of a social wallet, when each person in need will be distributed according to the registry, according to the IIN.: housing assistance, child nutrition assistance, and so on. That is, in a targeted way to a wallet that can be used to pay.

Accordingly, it will also improve the quality of services received, because service providers will have competition, and they will work according to market principles with this demand, which is generated by government subsidies.

- According to the Ministry of Finance, there are about 40 types of taxes and other mandatory payments to the budget in the country. The lion's share of them is provided by five types of taxes. Maybe it's worth simplifying the administration of other unproductive taxes, where the cost of collecting them exceeds revenue, don't you think?

- Indeed, Kazakhstan has a large number of taxes and other mandatory payments. Some of them are not prescribed in the Tax Code, but they are in other laws. For example, these are pension contributions, compulsory medical insurance, and social insurance. And, of course, there are a lot of them. Each of them has its own purpose: taxes, fees, fees, duties.

I don't think this is a serious problem because they don't concern all taxpayers. But, of course, there is the potential to reduce them. First of all, this concerns the transport tax. It would probably be more fair to include this tax in the excise taxes on gasoline. And those who drive more, use the roads, and pollute the environment more would pay more.

That is, it seems to me that the reference to the engine capacity is incorrect.

Another tax, or rather the payment system that needs to be reviewed first, is payments from the payroll. These are the personal income tax, social tax, pension contributions, which are divided into employer and employee, CSHI is also divided into employer and employee, and social contributions. There are a lot of payroll payments and a very high workload. To pay an employee 200-300 thousand tenge in net, you need to pay about 42-43% more on top of all payments. This is a very serious burden, which is why we have salaries in envelopes. It is necessary to introduce a single payment from the payroll and reduce its overall burden. And the social tax can be combined with the personal income tax. And I think employers' pension contributions should be abolished.

It is necessary to analyze the effectiveness of compulsory social health insurance and critically look at the principles of its financing. There are many different models of healthcare financing, and we need to discuss with experts and specialists how our healthcare system should develop in terms of financing.

- It is important to mention in the context of the budget deficit that, despite the deficit in the republican budget, local budgets are doing well in terms of revenue and are closing with a surplus. This was done as part of the budget decentralization of the regions from the center. How effective are the expenses of the regional authorities and has this aspect been analyzed? Perhaps it would be advisable to curtail or finalize this reform?

- Indeed, in the context of the budget deficit, there was such a situation that when implementing the decentralization policy, we transferred part of the taxes to local budgets. First of all, it concerns the CPN. Currently, CPN from small and medium-sized businesses is credited to local budgets. But these taxes are volatile - they strongly depend on the economic situation in the country. Therefore, the tax base of local budgets has become unstable, which leads, firstly, to over-fulfillment of the revenue plan of local authorities, and secondly, if a crisis situation arises, these revenues may also fall sharply.

Last year, the approved plan of local budgets amounted to about 13.4 trillion tenge, and the actual execution was 15.4 trillion tenge. That is, the over-fulfillment of the revenue plan exceeded 2 trillion tenge. This money, which is additionally received by the regional authorities, is being used by the local authorities. As a result, we have come to a contradictory situation: at the national level, there is a budget deficit and a shortage of funds, as a result of which the government has come up with a tax reform, and at the local level there is a serious over-fulfillment of income, including income and corporate taxes.

And there are no effective compensation mechanisms. I think we need to review the system of inter-budgetary relations. It is good when local authorities have their own revenues, but there is a theoretical principle that the lower the budget level, the less volatile their incomes should be.

Simply put, it is impossible to transfer to the local level those types of taxes that are very volatile.

- The tax system should become the basis of the country's competitiveness, not increasing the burden, but expanding the number of taxpayers. Do you have your own conceptual proposals on this subject and can you voice them in large strokes?

- As for the tax reform in general, it is very painful for the population and for businesses. An increase in the VAT rate has a direct impact on inflation, rising prices, a decrease in effective demand and a drop in real incomes of the population.

But there is another initiative related to lowering the VAT threshold and abolishing the simplified declaration. These two measures can seriously undermine our business activity. There are alternative methods to increase revenue collection, primarily by improving the quality of administration.

The key problem that the government is talking about is the fragmentation of business and the underestimation of income. This is true, fragmentation is widespread, and understatement of turnover is also common, and therefore the state Revenue Committee constantly sends entrepreneurs "letters of happiness" with desk control and additional charges. And this became a topic of discussion when bloggers received these desk control notifications, but in fact, for many years now, tens of thousands of individual entrepreneurs have been receiving these notifications and working with them, and they are constantly receiving additional payments.

There are two ways to deal with this. The first is to tighten administration, lower the VAT threshold, as proposed by the government, and try to force everyone to pay taxes in repressive ways. And the second is to create incentives for people who are engaged in business, micro and small businesses, to pay taxes voluntarily. That is, so that the administration system makes it possible to pay taxes very easily and unnoticeably with a minimum burden, so that people are involved in this tax process, learn how to pay taxes, keep records of their income and expenses.

And this is a long evolutionary path related to digitalization. In Kazakhstan, digitalization is at a high level, banking platforms are working effectively, and non-cash payments are widespread. And this is a good basis for increasing tax collection through the digitalization of tax administration. For example, Estonia has a tax regime for an entrepreneurial account: you open an account with a second-tier bank, check the box that you are now an entrepreneur, and your income and expenses are automatically recorded on this entrepreneurial account, and once a month you receive a draft declaration, you simply coordinate it and pay from these incomes turnover tax.

Of course, a revolving tax is very convenient for micro and small businesses, as we currently have, according to a simplified declaration, for retail tax. As for the rates, you can think about their gradual increase. But the very principle and concept that there should be a revolving tax for micro and small businesses should be preserved, it is more convenient and will allow businesses to come out of the shadows. And if you try to drive everyone into VAT now, it will be difficult and unproductive, and many businessmen will not be able to withstand such pressure. I am sure that in a couple of years we will come to the point where we will review these regimes again and create more favorable conditions for micro and small businesses, without achieving a fiscal effect.

- Thanks for the interview!